(Adds comments from the source on Reliance-BP in 3rd, 7th, 9th-12th paragraphs, information from media report in 8th paragraph; details.)

NEW DELHI (MarketWatch) -- India's oil ministry has recommended for approval Reliance Industries Ltd.'s (500325.BY) proposal to sell a stake in its oil and gas fields to BP PLC (BP.LN) and a cabinet panel is likely to clear the deal next week, a person with direct knowledge of the matter said Wednesday.

"The oil ministry has unequivocally recommended [the deal] for clearance," the person told reporters on condition of anonymity.

"Technically the [oil] ministry has the competence to approve the deal on its own, but since it's a big-ticket investment, it has been referred to the cabinet committee on economic affairs," he added.

The companies have been waiting for government approval since February when Reliance agreed to sell a 30% stake in 23 of its oil and gas blocks in India to the British oil explorer for $7.2 billion plus another $1.8 billion linked to exploration success. Reliance has said it wants to use BP's deepwater-drilling expertise to resolve gas-production problems at its fields where the company has reported a fall in output in recent months.

For BP, the deal will give access to new hydrocarbon resources and markets, especially after its pullout from the Gulf of Mexico following an oil spill last year, and due to political troubles in the oil-rich Middle East and northern Africa that made those regions risky for investments.

The Reliance-BP deal is set to get approval faster than Vedanta Resources PLC's (VED.LN) proposal to buy a majority stake in the Indian unit of Cairn Energy PLC (CNE.LN). That deal got a conditional approval from the government last month, almost a year after it was made public, as Cairn's Indian partner, state-run Oil & Natural Gas Corp. (500312.BY), wanted the government to settle a long-pending royalty payment issue with Cairn.

The oil ministry had invited comments from the interior as well as law, corporate affairs and finance ministries before taking a decision on the proposed Reliance-BP transaction, the source said.

The interior ministry, which cleared the deal a month ago, wanted to know if Reliance could have sold the stake to state-run GAIL (India) Ltd. (532155.BY), the Press Trust of India reported Wednesday, citing sources it didn't identify. The ministry also raised concerns about a proposed joint venture between Reliance and BP to buy and market gas likely hurting gas transporter GAIL, the report said.

When asked about the interior ministry's concerns, the person said they have been addressed by the oil ministry.

Moreover, the Reliance-BP agreement to set up a joint venture for transporting and marketing natural gas in India doesn't need government approval, the person said.

On the Cairn-Vedanta deal, the person said the government's approval was delayed as it involved the interests of Oil & Natural Gas Corp., which complicated the deal.

When asked why the oil ministry has recommended the Reliance-BP deal for clearance, the person said the deal will give deepwater drilling technology to Reliance and "that is what they need."

Reliance's D6 block, India's richest gas find off the eastern coast in the Krishna-Godavari basin, is part of the deal. The block has been dogged by gas-production issues with its output falling to below 50 million metric standard cubic meter per day from 60 MMSCMD last year.

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